TOKYO (MNI) – Japan’s industrial output will post a sharp rebound
in coming months, buoying the economy together with fiscal spending to
rebuild quake-hit northern regions, but whether consumer spending will
emerge later in the year is yet to be seen, economists said.
Among bullish forecasters, Yuji Shimanaka, chief economist at
Business Cycle Research of Mitsubishi UFJ Morgan Stanley Securities,
predicts the economy will expand 0.7% in fiscal 2011 and 3.1% in the
following year.
The latest monthly survey by the Cabinet Office’s Economic Planning
Association showed that the average forecast by 41 forecasters for real
GDP is for +0.1% in fiscal 2011 and +2.9% in fiscal 2011.
Shimanaka is counting on a quick recovery in automobile production,
which he believes should lead the GDP to show an expansion above its
potential growth rate of around 0.5% in the current fiscal year.
“Japan’s industrial production is smoothly recovering after hitting
bottom in March, thanks to increased automobile production. Strong
production will help boost economic growth,” he said.
Based on forecasts by the Japan Automobile Manufacturers
Association provided in its newsletter sent to paid subscribers,
Shimanaka forecast that automobile output will rise 47.3% in June from
the previous month and 31.3% in July-September from the previous
quarter.
These figures are largely in line with manufacturers’ projections
seen in the latest government survey, said Akiyoshi Takumori, chief
economist at Sumitomo Mitsui Asset Management.
The production forecast index for transport equipment (mostly cars)
compiled by the Ministry of Economy, Trade and Industry is expected to
jump 35.7% to 54.0% in May from a preliminary 39.8 in April and by a
further 36.7% to 73.8 in June.
That would be a sharp rebound after falling a revised 1.9% to 51.9
in April and plunging 46.7% to 52.9 in March, but the forecast level in
June would be still far below 90s seen before the March 11 disaster.
“Even if we assume that the index will show no growth in each month
of the July-September quarter, it would still post a 32.1% rise from
April-June,” Takumori said.
The expected high pace of a rebound in May and June suggests that
manufacturers are trying to produce as much as they can before they have
to cut power consumption at the peak time of the summer,” he said.
But Takumori warned that consumer spending may remain sluggish as
employees at many firms have been encouraged to minimize overtime
working hours in order to save energy amid reduced electricity supply
from nuclear power stations across the country.
While summer bonuses may show a rise from a year earlier, lost
production and sales in the aftermath of the March disaster and the
nuclear crisis could lead to lower year-end bonuses, he added.
Takumori forecast real GDP will grow only 0.1% this fiscal year
before rising 3.0% in fiscal 2012, in line with the consensus call.
Industrial production appears to have risen by 5.4% in May from the
previous month, after rebounding a revised 1.6% in April and posting a
record 15.5% drop in March, according to the median forecast of
economists surveyed by Market News International.
The METI will release the data at 0850 JST on Wednesday, June 29
(2350 GMT Tuesday).
Bank of Japan Governor Masaaki Shirakawa told reporters that in the
past month there had been an “upside surprise” to the pace of a recovery
in production facilities, supply chains and backup plans to cope with
power shortages during the peak usage time this summer.
For instance, the auto industry will operate plants on Saturdays
and Sundays and halt them Thursdays and Fridays to help reduce power
consumption during peak times.
“In addition to an increase in automobile production, public works
spending will likely increase in the third quarter onward, helping
accelerate the pace of an economy recovery,” Shimanaka said.
He expects real GDP to grow at an annualized 4.4% in
July-September, 4.6% in the October-December and 5.2% in the first
quarter of 2012.
On monetary policy, Shimanaka said the BOJ is likely to increase
the scale of its asset-buying program from Y10 trillion in coming
months, when the government drafts a third supplementary budget, which
could total about Y10 trillion.
Such easing measureS will increase the monetary base, which in turn
should head off a spike in the yen’s value against major currencies and
prevent long-term interest rates from rising that may be triggered by
extra fiscal spending, he said.
The government plans to submit a second disaster-response
supplementary budget to parliament on July 15 and hopes it will be
enacted by the end of July. Ruling party officials have said a third
supplementary budget will be drafted under new leadership after Prime
Minister Naoto Kan steps down sometime around end-August.
“To prevent the yen and long-term interest rates from rising, the
BOJ, in tandem with government fiscal steps, is likely to increase the
total size of its asset-buying program, especially Japanese government
bonds,” Shimanaka said.
He added that Deputy Governor Kiyohiko Nishimura, who proposed to
increase the total amount of the asset-buying facility to Y15 trillion
from Y10 trillion at the April 28 policy-setting meeting, is expected to
again call for increasing the amount, taking the third supplementary
budget into consideration.
“The BOJ is likely to decide on an additional easy policy measure
at the Aug. 4-5 meeting preemptively. If not, the BOJ may act by holding
an extraordinary policy meeting in mid-August,” said Shimanaka.
Shimanaka said higher growth in the monetary base compared to that
in the U.S. should in theory lead to a weaker yen against the dollar.
Japan’s monetary base rose 16.2% on the year to Y114.42 trillion in
May, marking the 33rd straight year-on-year gain, but it was lower than
a 27.7% rise in the U.S. in the same month.
In Japan, the April growth decelerated from a 23.9% rise in April,
the highest level since the BOJ began compiling the data in January
1970, and it matched the growth in the U.S. monetary base in April.
The monetary base is the total balance of current accounts
deposited at the central bank, plus bank notes and coins in circulation.
hinoue@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **
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